Broderbund 'too cautious', says money manager 06-15-98

BrenonDaly

NEW YORK (CBS.MW) -- Broderbund Software shares dropped 15 percent Monday after the maker of entertainment and educational software warned it expects to lose money during the quarter because of higher-than-expected rebates and returns of its software.

The Novato, Calif.-based company said it expects to lose 12 to 15 cents per share, compared to Wall Street analysts' projections of a 1 cent per share profit. Shares, which are trading at just 2 points above their low for the past year, slipped 3 to 17 3/16. Volume was about four times heavier than average.

Monday's earnings warning didn't come as a surprise to most on Wall Street, as 10 of the 12 analysts surveyed by Zacks Investment Research rated the stock a "hold" ahead of the warning.

And on the other side of the Street, sell-siders were more pessimistic about the Broderbund (BROD)
brod
, the company known for its Riven and Myst software games.

"They just weren't doing what it took to keep (their titles) current," said Dana Lee Feick, senior portfolio manager at Minneapolis' Wilke/Thompson Capital Management, which used to own about 3.5 percent of Broderbund's shares. "They were too cautious -- risk-adverse in the extreme."

Not enough new

Broderbund didn't put enough money into developing new titles, Feick said. "They just kept their evergreen titles." Now Broderbund is shopping those titles to other companies, as the company has hired the investment bank Donaldson, Lufkin & Jenerette to explore "strategic options."

David Farina, analyst at Chicago's William Blair & Co., said he sees bidders coming from three areas: toy, media as well as other software companies. Disney, Hasbro, GT Interactive and The Learning Company are names that have been bandied about as possible acquirers of Broderbund.

Farina sees a company picking up Broderbund for a per-share purchase price in the "low to mid-20s." But he's not advising clients to get involved in the sagging shares: "We don't play the buyout game."

Broderbund has a "pristine" balance sheet with $137 million in cash, no debt and it produces cash, Farina said. Sales are expected to hit about $52 million, up from $39.3 million in the fiscal third quarter last year.

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